UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): August 10, 2016
MURPHY OIL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 1-8590 | 71- 0361522 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) | ||
300 Peach Street P.O. Box 7000, El Dorado, Arkansas |
71730-7000 | |||
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code 870-862-6411
Not applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 8.01. Other Events
Revolving Credit Facility
On August 10, 2016, Murphy Oil Corporation (the Company) announced that it has received commitments from certain members of its existing bank group and other new tenders to enter into a $1.2 billion revolving credit facility (the New Revolving Credit Facility). The New Revolving Credit Facility will be a senior unsecured guaranteed facility and will expire in August 2019. The Company presently expects the facility to be undrawn at closing.
The Company expects that borrowings under the New Revolving Credit Facility will initially bear interest at 4.50% above LIBOR and thereafter be subject to stepdowns based on consolidated leverage ratios set forth in the credit agreement for the New Revolving Credit Facility. In addition, facility fees of 0.50% are charged on the full commitments under the New Revolving Credit Facility. Beginning in the quarter ending March 31, 2017, if the Companys total leverage ratio exceeds 3.25 times the Companys trailing twelve month consolidated adjusted EBITDAX (as defined in the credit agreement for the New Revolving Credit Facility), the New Revolving Credit Facility will be required to become secured, subject to limitations set forth in the documents governing the Companys existing notes.
The New Revolving Credit Facility will also contain certain financial and other covenants, including a maximum consolidated debt ratio of 3.75x, and a minimum ratio of Adjusted EBITDAX to interest expense of 2.50x. Furthermore, as a condition to availability, the Company is required to execute at least a $400 million capital markets offering.
In addition, under the Companys existing 2011 credit facility, the Company will retain a total of $630 million of commitments until the 2011 credit facility expires in June 2017.
The foregoing is qualified by reference to the press release attached as Exhibit 99.1 to this Current Report on Form 8-K, which is incorporated herein by reference.
Senior Notes
On August 10, 2016, the Company announced, subject to market conditions, it intends to offer $500 million of senior notes due 2024 (the Notes) pursuant to an effective shelf registration statement previously filed with the Securities and Exchange Commission.
The foregoing is qualified by reference to the press release attached as Exhibit 99.2 to this Current Report on Form 8-K, which is incorporated herein by reference.
This Current Report on Form 8-K does not constitute an offer to sell or the solicitation of an offer to buy the Notes, nor shall there be any offer, solicitation or sale of the Notes in any state in which such offer, solicitation or sale would be unlawful.
Report of Ryder Scott
Attached as Exhibit 99.3 hereto is the report of Ryder Scott Company, L.P. (Ryder Scott) on the estimated oil and gas reserves of the Company attributable to the Companys leasehold properties located in the Eagle Ford Shale in south Texas in the United States as of December 31, 2015. Attached as Exhibit 23.1 hereto is the consent of Ryder Scott to the inclusion of such report into certain registration statements of the Company.
Item 9.01. Financial Statements and Exhibits
(d) | Exhibits |
23.1 | Consent of Ryder Scott Company, L.P. | |
99.1 | Press release announcing the New Revolving Credit Facility | |
99.2 | Press release announcing the Notes offering | |
99.3 | Report of Ryder Scott Company, L.P. |
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
MURPHY OIL CORPORATION | ||
By: | /s/ John B. Gardner | |
John B. Gardner | ||
Vice President & Treasurer |
Date: August 10, 2016
Exhibit Index
23.1 | Consent of Ryder Scott Company, L.P. | |
99.1 | Press release announcing the New Revolving Credit Facility | |
99.2 | Press release announcing the Notes offering | |
99.3 | Report of Ryder Scott Company, L.P. |
Exhibit 23.1
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TBPE REGISTERED ENGINEERING FIRM F-1580 | FAX (713) 651-0849 | |||||||
1100 LOUISIANA | SUITE 4600 | HOUSTON, TEXAS 77002-5294 | TELEPHONE (713) 651-9191 |
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
As independent petroleum engineers, we consent to the incorporation by reference in the registration statement (No. 333-207463) on Form S-3ASR of Murphy Oil Corporation to our firms name under the caption Experts and the inclusion of our report, dated July 21, 2016, which appears as Exhibit 99.3 in the Form 8-K of Murphy Oil Corporation filed on August 10, 2016.
/s/ RYDER SCOTT COMPANY, L.P. |
RYDER SCOTT COMPANY, L.P. |
TBPE Firm Registration No. F-1580 |
Houston, Texas
August 10, 2016
SUITE 600, 1015 4TH STREET, S.W. CALGARY, ALBERTA T2R 1J4 TEL (403) 262-2799 FAX (403) 262-2790
621 17TH STREET, SUITE 1550 DENVER, COLORADO 80293-1501 TEL (303) 623-9147 FAX (303) 623-4258
Exhibit 99.1
MURPHY OIL CORPORATION ANNOUNCES INTENT TO ENTER INTO NEW
CREDIT FACILITY
EL DORADO, Arkansas, August 10, 2016 Murphy Oil Corporation (NYSE:MUR) announced that it has received commitments, from certain members of its existing bank group and other new lenders to enter into a $1.2 billion revolving credit facility. The new revolving credit facility will be a senior unsecured guaranteed facility and will expire in August 2019. The Company presently expects the facility to be undrawn at closing.
Given market conditions this new revolving facility reflects the strength of our asset base and confidence the participating banks place in our Company, stated Roger W. Jenkins, President and Chief Executive Officer. This credit facility aligns with our structure as an independent exploration and production company and gives us ample liquidity for our long-term strategy, Jenkins added.
The Company expects that the principal terms of the new revolving credit facility will include the following:
| Unsecured, with guarantees from certain domestic and foreign subsidiaries |
| Automatic reduction in facility size to a minimum of $1.0 billion should the Company make substantial asset sales |
| Varying interest rates for the facility, based on the Companys total leverage ratio, between a range of LIBOR plus 250 basis points up to LIBOR plus 450 basis points |
| Beginning in the quarter ending March 31, 2017, if the Companys total leverage ratio exceeds 3.25 times the Companys trailing twelve month consolidated Adjusted EBITDAX the facility will be required to become secured, subject to limitations set forth in the Companys existing notes |
| Various compliance covenants within the facility include: |
| Minimum Adjusted EBITDAX of 2.5 times consolidated interest expense |
| Consolidated Debt not to exceed 3.75 times Adjusted EBITDAX |
| Minimum liquidity from U.S. and Canadian entities, equal to or greater than $500 million |
P.O. Box 7000, El Dorado, Arkansas 71731-7000
| As a condition to availability of the facility, the Company is required to execute at least a $400 million capital markets offering |
In addition, under the existing 2011 credit facility, the Company will retain a total of $630 million of bank commitments until the 2011 credit facility expires in June 2017.
ABOUT MURPHY OIL CORPORATION
Murphy Oil Corporation is a global independent oil and natural gas exploration and production company. The Companys diverse resource base includes offshore production in Southeast Asia, Canada and Gulf of Mexico, as well as North America onshore plays in the Eagle Ford Shale, Kaybob Duvernay and Montney. Additional information can be found on the Companys website at http://www.murphyoilcorp.com.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express managements current views concerning future events or results are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements include, but are not limited to, the volatility and level of crude oil and natural gas prices, the level and success rate of Murphys exploration programs, the Companys ability to maintain production rates and replace reserves, customer demand for Murphys products, adverse foreign exchange movements, political and regulatory instability, adverse developments in the U.S. or global capital markets, credit markets or economies generally and uncontrollable natural hazards, as well as those contained under the caption Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2015. For further discussion of risk factors, see Murphys 2015 Annual Report on Form 10-K, on file with the U.S. Securities and Exchange Commission. Murphy undertakes no duty to publicly update or revise any forward-looking statements.
Investor Contacts:
Kelly Whitley, kelly_whitley@murphyoilcorp.com, 281-675-9107
Nancy Perkins, nancy_perkins@murphyoilcorp.com, 281-675-9252
Emily McElroy, emily_mcelroy@murphyoilcorp.com, 870-864-6324
P.O. Box 7000, El Dorado, Arkansas 71731-7000
Exhibit 99.2
MURPHY OIL CORPORATION ANNOUNCES OFFERING OF $500 MILLION OF
SENIOR NOTES DUE 2024
EL DORADO, Arkansas, August 10, 2016 Murphy Oil Corporation (NYSE:MUR) announced, subject to market conditions, it intends to offer $500 million of Senior Notes that will mature in 2024 (2024 notes) pursuant to an effective shelf registration statement previously filed with the Securities and Exchange Commission (SEC).
The Company expects to use the net proceeds from the offering of the 2024 notes for general corporate purposes, which may include the repayment, repurchase or redemption of the Companys 2.5 percent notes due 2017.
J.P. Morgan Securities LLC is acting as joint book-running manager for the offering. The offering is being made under an automatic shelf registration statement on Form S-3 (Registration No. 333-207463) filed by Murphy with the SEC and only by means of a prospectus supplement and accompanying prospectus. An investor may obtain free copies of the prospectus supplement and accompanying prospectus related to the offering by visiting EDGAR on the SEC website, www.sec.gov, or by contacting:
J.P. Morgan Securities LLC
c/o Broadridge Financial Solutions
1155 Long Island Avenue
Edgewood, NY 11717
1-866-803-9204
P.O. Box 7000, El Dorado, Arkansas 71731-7000
This press release does not constitute an offer to sell or the solicitation of an offer to buy the securities described herein, nor shall there be any sale of these securities in any jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
ABOUT MURPHY OIL CORPORATION
Murphy Oil Corporation is a global independent oil and natural gas exploration and production company. The Companys diverse resource base includes offshore production in Southeast Asia, Canada and Gulf of Mexico, as well as, North America onshore plays in the Eagle Ford Shale, Kaybob Duvernay and Montney.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express managements current views concerning future events or results are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements include, but are not limited to, the volatility and level of crude oil and natural gas prices, the level and success rate of Murphys exploration programs, the Companys ability to maintain production rates and replace reserves, customer demand for Murphys products, adverse foreign exchange movements, political and regulatory instability, adverse developments in the U.S. or global capital markets, credit markets or economies generally and uncontrollable natural hazards, as well as those contained under the caption Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2015. For further discussion of risk factors, see Murphys 2015 Annual Report on Form 10-K, on file with the U.S. Securities and Exchange Commission. Murphy undertakes no duty to publicly update or revise any forward-looking statements.
Investor Contacts:
Kelly Whitley, kelly_whitley@murphyoilcorp.com, 281-675-9107
Nancy Perkins, nancy_perkins@murphyoilcorp.com, 281-675-9252
Emily McElroy, emily_mcelroy@murphyoilcorp.com, 870-864-6324
P.O. Box 7000, El Dorado, Arkansas 71731-7000
Exhibit 99.3
MURPHY OIL CORPORATION
Estimated
Future Reserves
Attributable to Certain
Leasehold Interests
SEC Parameters
As of
December 31, 2015
\s\ Jeffrey D. Wilson |
Jeffrey D. Wilson, P.E. |
TBPE License No. 86426 |
Managing Senior Vice President |
[SEAL]
RYDER SCOTT COMPANY, L.P.
TBPE Firm Registration No. F-1580
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
TBPE REGISTERED ENGINEERING FIRM F-1580 | FAX (713) 651-0849 | |||||
1100 LOUISIANA SUITE 4600 | HOUSTON, TEXAS 77002-5294 | TELEPHONE (713) 651-9191 |
July 21, 2016
Mr. Michael Lasswell,
General Manager - Corporate Reserves Group
Murphy Oil Corporation
9805 Katy Freeway, Suite G-200
Houston, TX 77024
Gentlemen:
At the request of Murphy Oil Corporation (Murphy), Ryder Scott Company, L.P. (Ryder Scott) has conducted a reserves audit of the estimates of the proved reserves as of December 31, 2015 prepared by Murphys engineering and geological staff based on the definitions and disclosure guidelines of the United States Securities and Exchange Commission (SEC) contained in Title 17, Code of Federal Regulations, Modernization of Oil and Gas Reporting, Final Rule released January 14, 2009 in the Federal Register (SEC regulations). Our reserves audit, completed on July 21, 2016 and presented herein, was prepared for public disclosure by Murphy in filings made with the SEC in accordance with the disclosure requirements set forth in the SEC regulations. The estimated reserves shown herein represent Murphys estimated net reserves attributable to the leasehold interests in the Eagle Ford Shale (EFS) trend owned by Murphy and reviewed by Ryder Scott, as of December 31, 2015. The properties reviewed by Ryder Scott incorporate Murphy reserve determinations and are located in the state of Texas.
The properties reviewed by Ryder Scott account for 100 percent of the total net proved liquid hydrocarbon reserves and 100 percent of the total net proved gas reserves owned by Murphy in the Eagle Ford Shale trend as of December 31, 2015.
As prescribed by the Society of Petroleum Engineers in Paragraph 2.2(f) of the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information (SPE auditing standards), a reserves audit is defined as the process of reviewing certain of the pertinent facts interpreted and assumptions made that have resulted in an estimate of reserves prepared by others and the rendering of an opinion about (1) the appropriateness of the methodologies employed; (2) the adequacy and quality of the data relied upon; (3) the depth and thoroughness of the reserves estimation process; (4) the classification of reserves appropriate to the relevant definitions used; and (5) the reasonableness of the estimated reserve quantities.
Based on our review, including the data, technical processes and interpretations presented by Murphy, it is our opinion that the overall procedures and methodologies utilized by Murphy in preparing their estimates of the proved reserves as of December 31, 2015 comply with the current SEC regulations and that the overall proved reserves for the reviewed properties as estimated by Murphy are, in the aggregate, reasonable within the established audit tolerance guidelines of 10 percent as set forth in the SPE auditing standards.
The estimated reserves presented in this report are related to hydrocarbon prices. Murphy has informed us that in the preparation of their reserve and income projections, as of December 31, 2015, they used average prices during the 12-month period prior to the as of date of this report, determined
SUITE 600, 1015 4TH STREET, S.W. CALGARY, ALBERTA T2R 1J4 TEL (403) 262-2799 FAX (403) 262-2790
621 17TH STREET, SUITE 1550 DENVER, COLORADO 80293-1501 TEL (303) 623-9147 FAX (303) 623-4258
Murphy Oil Corporation
July 21, 2016
Page 2
as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period, unless prices were defined by contractual arrangements, as required by the SEC regulations. Actual future prices may vary significantly from the prices required by SEC regulations; therefore, volumes of reserves actually recovered and the amounts of income actually received may differ significantly from the estimated quantities presented in this report. The net reserves as estimated by Murphy attributable to Murphys interest in properties that we reviewed are summarized below:
SEC PARAMETERS
Estimated Net Reserves
Certain Leasehold Interests of
Murphy Oil Corporation
As of December 31, 2015
Proved | ||||||||||||||||
Developed | ||||||||||||||||
Producing | Non-Producing | Undeveloped | Total | |||||||||||||
Audited by Ryder Scott |
||||||||||||||||
Total Net Reserves |
||||||||||||||||
Oil/Condensate Mbbl |
99,860 | 2,293 | 105,795 | 207,948 | ||||||||||||
Plant Products Mbbl |
17,315 | 362 | 14,377 | 32,054 | ||||||||||||
Gas MMcf |
87,425 | 1,779 | 77,354 | 166,558 |
Liquid hydrocarbons are expressed in standard 42 gallon barrels and shown herein as thousands of barrels (Mbbl). All gas volumes are reported on an as sold basis expressed in millions of cubic feet (MMcf) at the official temperature and pressure bases of the areas in which the gas reserves are located.
Reserves Included in This Report
In our opinion, the proved reserves presented in this report conform to the definition as set forth in the Securities and Exchange Commissions Regulations Part 210.4-10(a). An abridged version of the SEC reserves definitions from 210.4-10(a) entitled Petroleum Reserves Definitions is included as an attachment to this report.
The various proved reserve status categories are defined under the attachment entitled Petroleum Reserves Status Definitions and Guidelines in this report. The proved developed non-producing reserves included herein consist of the shut-in category.
Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. All reserve estimates involve an assessment of the uncertainty relating the likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities determined as of the date the estimate is made. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves and may be further sub-classified as probable and possible reserves to denote progressively increasing uncertainty in their recoverability. At Murphys request, this report addresses only the proved reserves attributable to the properties reviewed herein.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Murphy Oil Corporation
July 21, 2016
Page 3
Proved oil and gas reserves are those quantities of oil and gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward. The proved reserves included herein were estimated using deterministic methods. The SEC has defined reasonable certainty for proved reserves, when based on deterministic methods, as a high degree of confidence that the quantities will be recovered.
Proved reserve estimates will generally be revised only as additional geologic or engineering data become available or as economic conditions change. For proved reserves, the SEC states that as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to the estimated ultimate recovery (EUR) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease. Moreover, estimates of proved reserves may be revised as a result of future operations, effects of regulation by governmental agencies or geopolitical or economic risks. Therefore, the proved reserves included in this report are estimates only and should not be construed as being exact quantities, and if recovered, could be more or less than the estimated amounts.
Audit Data, Methodology, Procedure and Assumptions
The estimation of reserves involves two distinct determinations. The first determination results in the estimation of the quantities of recoverable oil and gas and the second determination results in the estimation of the uncertainty associated with those estimated quantities in accordance with the definitions set forth by the Securities and Exchange Commissions Regulations Part 210.4-10(a). The process of estimating the quantities of recoverable oil and gas reserves relies on the use of certain generally accepted analytical procedures. These analytical procedures fall into three broad categories or methods: (1) performance-based methods; (2) volumetric-based methods; and (3) analogy. These methods may be used individually or in combination by the reserve evaluator in the process of estimating the quantities of reserves. Reserve evaluators must select the method or combination of methods which in their professional judgment is most appropriate given the nature and amount of reliable geoscience and engineering data available at the time of the estimate, the established or anticipated performance characteristics of the reservoir being evaluated, and the stage of development or producing maturity of the property.
In many cases, the analysis of the available geoscience and engineering data and the subsequent interpretation of this data may indicate a range of possible outcomes in an estimate, irrespective of the method selected by the evaluator. When a range in the quantity of reserves is identified, the evaluator must determine the uncertainty associated with the incremental quantities of the reserves. If the reserve quantities are estimated using the deterministic incremental approach, the uncertainty for each discrete incremental quantity of the reserves is addressed by the reserve category assigned by the evaluator. Therefore, it is the categorization of reserve quantities as proved, probable and/or possible that addresses the inherent uncertainty in the estimated quantities reported. For proved reserves, uncertainty is defined by the SEC as reasonable certainty wherein the quantities actually recovered are much more likely than not to be achieved. The SEC states that probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered. The SEC states that possible reserves are those additional reserves that are less certain to be recovered than probable reserves and the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. All quantities of reserves within the same reserve category must meet the SEC definitions as noted above.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Murphy Oil Corporation
July 21, 2016
Page 4
Estimates of reserves quantities and their associated reserve categories may be revised in the future as additional geoscience or engineering data become available. Furthermore, estimates of reserves quantities and their associated reserve categories may also be revised due to other factors such as changes in economic conditions, results of future operations, effects of regulation by governmental agencies or geopolitical or economic risks as previously noted herein.
The proved reserves, prepared by Murphy, were estimated by performance methods, analogy, or a combination of methods. All of the proved producing reserves attributable to producing wells and/or reservoirs that we reviewed were estimated by performance methods which utilized extrapolations of historical production and pressure data available through December 2015, in those cases where such data were considered to be definitive. The data utilized in this analysis were furnished to Ryder Scott by Murphy or obtained from public data sources and were considered sufficient for the purpose thereof. The proved developed non-producing and undeveloped reserves were estimated by analogy. All reserves included are anticipated to be recovered from primary recovery from horizontal wells.
To estimate economically recoverable proved oil and gas reserves, many factors and assumptions are considered including, but not limited to, the use of reservoir parameters derived from geological, geophysical and engineering data which cannot be measured directly, economic criteria based on current costs and SEC pricing requirements, and forecasts of future production rates. Under the SEC regulations 210.4-10(a)(22)(v) and (26), proved reserves must be anticipated to be economically producible from a given date forward based on existing economic conditions including the prices and costs at which economic producibility from a reservoir is to be determined. While it may reasonably be anticipated that the future prices received for the sale of production and the operating costs and other costs relating to such production may increase or decrease from those under existing economic conditions, such changes were, in accordance with rules adopted by the SEC, omitted from consideration in conducting this review.
As stated previously, proved reserves must be anticipated to be economically producible from a given date forward based on existing economic conditions including the prices and costs at which economic producibility from a reservoir is to be determined. To confirm that the proved reserves meet the SEC requirements to be economically producible, we have reviewed certain primary economic data utilized by Murphy relating to hydrocarbon prices and costs as noted herein.
The hydrocarbon prices furnished by Murphy are based on SEC price parameters using the average prices during the 12-month period prior to the as of date of this report, determined as the unweighted arithmetic averages of the prices in effect on the first-day-of-the-month for each month within such period.
The initial SEC hydrocarbon prices in effect on December 31, 2015 were determined using the 12-month average first-day-of-the-month benchmark prices appropriate to the geographic area where the hydrocarbons are sold. These benchmark prices are prior to the adjustments for differentials as described herein. The table below summarizes the benchmark prices and price reference used by Murphy for the geographic area.
The product prices which were actually used by Murphy to determine the future gross revenue reflect adjustments to the benchmark prices for gravity, quality, local conditions, and/or distance from market, referred to herein as differentials. The differentials used by Murphy were accepted as factual data and reviewed by us for their reasonableness; however, we have not conducted an independent verification of the data used by Murphy.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Murphy Oil Corporation
July 21, 2016
Page 5
The table below summarizes Murphys net volume weighted benchmark prices adjusted for differentials and referred to herein as Murphys average realized prices. The average realized prices shown in the table below were determined from Murphys estimate of the total future gross revenue before production taxes and Murphys estimate of the total net reserves for the geographic area. The data shown in the table below is presented in accordance with SEC disclosure requirements.
Geographic Area |
Product | Price Reference |
Average Benchmark Prices |
Average Realized Prices |
||||||||||||
North America |
||||||||||||||||
Oil/Condensate | WTI Cushing | $50.28/Bbl | $47.93/Bbl | |||||||||||||
United States |
NGLs | Mont Belvieu | $19.90/Bbl | $11.45/Bbl | ||||||||||||
Gas | Henry Hub | $2.58/MMBTU | $1.98/MCF |
The effects of derivative instruments designated as price hedges of oil and gas quantities are not reflected in Murphys individual property evaluations.
Accumulated gas production imbalances, if any, were not taken into account in the proved gas reserve estimates reviewed. The proved gas volumes presented herein do not include volumes of gas consumed in operations as reserves.
Operating costs furnished by Murphy are based on the operating expense reports of Murphy and include only those costs directly applicable to the leases or wells. The operating costs include a portion of general and administrative costs allocated directly to the leases and wells. The operating costs furnished by Murphy were accepted as factual data and reviewed by us for their reasonableness; however, we have not conducted an independent verification of the data used by Murphy. No deduction was made for loan repayments, interest expenses, or exploration and development prepayments that were not charged directly to the leases or wells.
Development costs furnished by Murphy are based on authorizations for expenditure for the proposed work or actual costs for similar projects. The development costs furnished by Murphy were accepted as factual data and reviewed by us for their reasonableness; however, we have not conducted an independent verification of the data used by Murphy. The estimated net cost of abandonment after salvage was included by Murphy for properties where abandonment costs net of salvage were significant. Murphys estimates of the net abandonment costs were accepted without independent verification.
The proved developed non-producing and undeveloped reserves have been incorporated herein in accordance with Murphys plans to develop these reserves as of December 31, 2015. The implementation of Murphys development plans as presented to us is subject to the approval process adopted by Murphys management. As the result of our inquiries during the course of our review, Murphy has informed us that the development activities for the properties reviewed by us have been subjected to and received the internal approvals required by Murphys management at the appropriate local, regional and/or corporate level. In addition to the internal approvals as noted, certain development activities may still be subject to specific partner AFE processes, Joint Operating Agreement (JOA) requirements or other administrative approvals external to Murphy. Additionally, Murphy has informed us that they are not aware of any legal, regulatory, or political obstacles that would significantly alter their plans. While these plans could change from those under existing economic conditions as of December 31, 2015, such changes were, in accordance with rules adopted by the SEC, omitted from consideration in making this evaluation.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Murphy Oil Corporation
July 21, 2016
Page 6
Current development costs used by Murphy are held constant throughout the life of the properties. Operating costs are based on current costs and reduced going forward based on recent realized operating cost reductions, planned operations changes and analogy for long term (mature fields) estimates.
Murphys forecasts of future production rates are based on historical performance from wells currently on production. If no production decline trend has been established, future production rates were held constant, or adjusted for the effects of curtailment where appropriate, until a decline in ability to produce was anticipated. An estimated rate of decline was then applied to depletion of the reserves. If a decline trend has been established, this trend was used as the basis for estimating future production rates.
Test data and other related information were used by Murphy to estimate the anticipated initial production rates for those wells or locations that are not currently producing. For reserves not yet on production, sales were estimated to commence at an anticipated date furnished by Murphy. Wells or locations that are not currently producing may start producing earlier or later than anticipated in Murphys estimates due to unforeseen factors causing a change in the timing to initiate production. Such factors may include delays due to weather, the availability of rigs, the sequence of drilling, completing and/or recompleting wells and/or constraints set by regulatory bodies.
The future production rates from wells currently on production or wells or locations that are not currently producing may be more or less than estimated because of changes including, but not limited to, reservoir performance, operating conditions related to surface facilities, compression and artificial lift, pipeline capacity and/or operating conditions, producing market demand and/or allowables or other constraints set by regulatory bodies.
Murphys operations may be subject to various levels of governmental controls and regulations. These controls and regulations may include, but may not be limited to, matters relating to land tenure and leasing, the legal rights to produce hydrocarbons, drilling and production practices, environmental protection, marketing and pricing policies, royalties, various taxes and levies including income tax and are subject to change from time to time. Such changes in governmental regulations and policies may cause volumes of proved reserves actually recovered and amounts of proved income actually received to differ significantly from the estimated quantities.
The estimates of proved reserves presented herein were based upon a review of the properties in which Murphy owns an interest; however, we have not made any field examination of the properties. No consideration was given in this report to potential environmental liabilities that may exist nor were any costs included by Murphy for potential liabilities to restore and clean up damages, if any, caused by past operating practices.
Certain technical personnel of Murphy are responsible for the preparation of reserve estimates on new properties and for the preparation of revised estimates, when necessary, on old properties. These personnel assembled the necessary data and maintained the data and workpapers in an orderly manner. We consulted with these technical personnel and had access to their workpapers and supporting data in the course of our audit.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Murphy Oil Corporation
July 21, 2016
Page 7
Murphy has informed us that they have furnished us all of the material accounts, records, geological and engineering data, and reports and other data required for this investigation. In performing our audit of Murphys forecast of future proved production, we have relied upon data furnished by Murphy with respect to property interests owned, production and well tests from examined wells, normal direct costs of operating the wells or leases, other costs such as transportation and/or processing fees, ad valorem and production taxes, recompletion and development costs, development plans, abandonment costs after salvage, product prices based on the SEC regulations, adjustments or differentials to product prices, geological structural and isochore maps, well logs, core analyses, and pressure measurements. Ryder Scott reviewed such factual data for its reasonableness; however, we have not conducted an independent verification of the data furnished by Murphy. We consider the factual data furnished to us by Murphy to be appropriate and sufficient for the purpose of our review of Murphys estimates of reserves. In summary, we consider the assumptions, data, methods and analytical procedures used by Murphy and as reviewed by us appropriate for the purpose hereof, and we have used all such methods and procedures that we consider necessary and appropriate under the circumstances to render the conclusions set forth herein.
Audit Opinion
Based on our review, including the data, technical processes and interpretations presented by Murphy, it is our opinion that the overall procedures and methodologies utilized by Murphy in preparing their estimates of the proved reserves as of December 31, 2015 comply with the current SEC regulations and that the overall proved reserves as estimated by Murphy are, in the aggregate, reasonable within the established audit tolerance guidelines of 10 percent as set forth in the SPE auditing standards.
We were in reasonable agreement with Murphys estimates of proved reserves for the properties which we reviewed; although in certain cases there was more than an acceptable variance between Murphys estimates and our estimates due to a difference in interpretation of data or due to our having access to data which were not available to Murphy when its reserve estimates were prepared. However not withstanding, it is our opinion that on an aggregate basis the data presented herein for the properties that we reviewed fairly reflects the estimated net reserves owned by Murphy.
Standards of Independence and Professional Qualification
Ryder Scott is an independent petroleum engineering consulting firm that has been providing petroleum consulting services throughout the world since 1937. Ryder Scott is employee-owned and maintains offices in Houston, Texas; Denver, Colorado; and Calgary, Alberta, Canada. We have over eighty engineers and geoscientists on our permanent staff. By virtue of the size of our firm and the large number of clients for which we provide services, no single client or job represents a material portion of our annual revenue. We do not serve as officers or directors of any privately-owned or publicly-traded oil and gas company and are separate and independent from the operating and investment decision-making process of our clients. This allows us to bring the highest level of independence and objectivity to each engagement for our services.
Ryder Scott actively participates in industry-related professional societies and organizes an annual public forum focused on the subject of reserves evaluations and SEC regulations. Many of our staff have authored or co-authored technical papers on the subject of reserves related topics. We encourage our staff to maintain and enhance their professional skills by actively participating in ongoing continuing education.
Prior to becoming an officer of the Company, Ryder Scott requires that staff engineers and geoscientists have received professional accreditation in the form of a registered or certified professional engineers license or a registered or certified professional geoscientists license, or the equivalent thereof, from an appropriate governmental authority or a recognized self-regulating professional organization.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Murphy Oil Corporation
July 21, 2016
Page 8
We are independent petroleum engineers with respect to Murphy. Neither we nor any of our employees have any financial interest in the subject properties, and neither the employment to do this work nor the compensation is contingent on our estimates of reserves for the properties which were reviewed.
The results of this audit, presented herein, are based on technical analysis conducted by teams of geoscientists and engineers from Ryder Scott. The professional qualifications of the undersigned, the technical person primarily responsible for overseeing, reviewing and approving the review of the reserves information discussed in this report, are included as an attachment to this letter.
Terms of Usage
The results of our third party audit, presented in report form herein, were prepared in accordance with the disclosure requirements set forth in the SEC regulations and intended for public disclosure as an exhibit in filings made with the SEC by Murphy.
Murphy makes periodic filings on Form 10-K with the SEC under the 1934 Exchange Act. Furthermore, Murphy has certain registration statements filed with the SEC under the 1933 Securities Act into which any subsequently filed Form 10-K is incorporated by reference. We have consented to the incorporation by reference in the registration statements on Form S-3 of Murphy of the references to our name as well as to the references to our third party report for Murphy, which appears in the December 31, 2015 annual report on Form 10-K of Murphy. Our written consent for such use is included as a separate exhibit to the filings made with the SEC by Murphy.
We have provided Murphy with a digital version of the original signed copy of this report letter. In the event there are any differences between the digital version included in filings made by Murphy and the original signed report letter, the original signed report letter shall control and supersede the digital version.
The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices. Please contact us if we can be of further service.
Very truly yours, |
RYDER SCOTT COMPANY, L.P. |
TBPE Firm Registration No. F-1580 |
\s\ Jeffrey D. Wilson |
Jeffrey D. Wilson, P.E. |
TBPE License No. 86426 |
Managing Senior Vice President |
JDW (DCR)/pl | [SEAL] |
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
Professional Qualifications of Primary Technical Engineer
The conclusions presented in this report are the result of technical analysis conducted by teams of geoscientists and engineers from Ryder Scott Company, L.P. Jeffrey D. Wilson was the primary technical person responsible for the estimate of the reserves, future production and income presented herein.
Mr. Wilson, an employee of Ryder Scott Company, L.P. (Ryder Scott) since 1998, is a Managing Senior Vice President and also serves as a member of the Board of Directors responsible for coordinating and supervising staff and consulting engineers of the company in ongoing reservoir evaluation studies worldwide. Before joining Ryder Scott, Mr. Wilson served in a number of engineering positions with Exxon. For more information regarding Mr. Wilsons geographic and job specific experience, please refer to the Ryder Scott Company website at www.ryderscott.com/Company/Employees.
Mr. Wilson earned a Bachelor of Science degree in Mechanical Engineering from the University of Houston in 1991, graduating with Magna Cum Laude honors, and is a licensed Professional Engineer in the State of Texas. He is also a member of the Society of Petroleum Engineers and currently serves as an advising member of the SPE Oil and Gas Reserves Committee.
The Texas Board of Professional Engineers requires a minimum of fifteen hours of continuing education annually, including at least one hour in the area of professional ethics, which Mr. Wilson fulfills. As part of his 2015 continuing education hours, Mr. Wilson attended or participated as a discussion panelist in four different multiday conferences and symposiums focused primarily on unconventional (shale) resource evaluations, SEC oil and gas reporting requirements, the SPE/WPC/AAPG/SPEE Petroleum Resources Management System and ethics training. Mr. Wilson also earned additional continuing education credits by attending various SPE Oil and Gas Reserves Committee meetings and making presentations of the results of his study of the SECs 2014 comment letters.
Based on his educational background, professional training and 25 years of practical experience in the estimation and evaluation of petroleum reserves, Mr. Wilson has attained the professional qualifications as a Reserves Estimator and Reserves Auditor set forth in Article III of the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers as of February 19, 2007.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES DEFINITIONS
As Adapted From:
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)
PREAMBLE
On January 14, 2009, the United States Securities and Exchange Commission (SEC) published the Modernization of Oil and Gas Reporting; Final Rule in the Federal Register of National Archives and Records Administration (NARA). The Modernization of Oil and Gas Reporting; Final Rule includes revisions and additions to the definition section in Rule 4-10 of Regulation S-X, revisions and additions to the oil and gas reporting requirements in Regulation S-K, and amends and codifies Industry Guide 2 in Regulation S-K. The Modernization of Oil and Gas Reporting; Final Rule, including all references to Regulation S-X and Regulation S-K, shall be referred to herein collectively as the SEC regulations. The SEC regulations take effect for all filings made with the United States Securities and Exchange Commission as of December 31, 2009, or after January 1, 2010. Reference should be made to the full text under Title 17, Code of Federal Regulations, Regulation S-X Part 210, Rule 4-10(a) for the complete definitions (direct passages excerpted in part or wholly from the aforementioned SEC document are denoted in italics herein).
Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. All reserve estimates involve an assessment of the uncertainty relating the likelihood that the actual remaining quantities recovered will be greater or less than the estimated quantities determined as of the date the estimate is made. The uncertainty depends chiefly on the amount of reliable geologic and engineering data available at the time of the estimate and the interpretation of these data. The relative degree of uncertainty may be conveyed by placing reserves into one of two principal classifications, either proved or unproved. Unproved reserves are less certain to be recovered than proved reserves and may be further sub-classified as probable and possible reserves to denote progressively increasing uncertainty in their recoverability. Under the SEC regulations as of December 31, 2009, or after January 1, 2010, a company may optionally disclose estimated quantities of probable or possible oil and gas reserves in documents publicly filed with the SEC. The SEC regulations continue to prohibit disclosure of estimates of oil and gas resources other than reserves and any estimated values of such resources in any document publicly filed with the SEC unless such information is required to be disclosed in the document by foreign or state law as noted in §229.1202 Instruction to Item 1202.
Reserves estimates will generally be revised only as additional geologic or engineering data become available or as economic conditions change.
Reserves may be attributed to either natural energy or improved recovery methods. Improved recovery methods include all methods for supplementing natural energy or altering natural forces in the reservoir to increase ultimate recovery. Examples of such methods are pressure maintenance, natural gas cycling, waterflooding, thermal methods, chemical flooding, and the use of miscible and immiscible displacement fluids. Other improved recovery methods may be developed in the future as petroleum technology continues to evolve.
Reserves may be attributed to either conventional or unconventional petroleum accumulations. Petroleum accumulations are considered as either conventional or unconventional based on the nature of their in-place characteristics, extraction method applied, or degree of processing prior to sale.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES DEFINITIONS
Page 2
Examples of unconventional petroleum accumulations include coalbed or coalseam methane (CBM/CSM), basin-centered gas, shale gas, gas hydrates, natural bitumen and oil shale deposits. These unconventional accumulations may require specialized extraction technology and/or significant processing prior to sale.
Reserves do not include quantities of petroleum being held in inventory.
Because of the differences in uncertainty, caution should be exercised when aggregating quantities of petroleum from different reserves categories.
RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §210.4-10(a)(26) defines reserves as follows:
Reserves. Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.
Note to paragraph (a)(26): Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir, or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).
PROVED RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §210.4-10(a)(22) defines proved oil and gas reserves as follows:
Proved oil and gas reserves. Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically produciblefrom a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulationsprior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.
(i) The area of the reservoir considered as proved includes:
(A) The area identified by drilling and limited by fluid contacts, if any, and
(B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES DEFINITIONS
Page 3
PROVED RESERVES (SEC DEFINITIONS) CONTINUED
(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.
(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.
(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:
(A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and
(B) The project has been approved for development by all necessary parties and entities, including governmental entities.
(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES STATUS DEFINITIONS AND GUIDELINES
As Adapted From:
RULE 4-10(a) of REGULATION S-X PART 210
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (SEC)
and
PETROLEUM RESOURCES MANAGEMENT SYSTEM (SPE-PRMS)
Sponsored and Approved by:
SOCIETY OF PETROLEUM ENGINEERS (SPE)
WORLD PETROLEUM COUNCIL (WPC)
AMERICAN ASSOCIATION OF PETROLEUM GEOLOGISTS (AAPG)
SOCIETY OF PETROLEUM EVALUATION ENGINEERS (SPEE)
Reserves status categories define the development and producing status of wells and reservoirs. Reference should be made to Title 17, Code of Federal Regulations, Regulation S-X Part 210, Rule 4-10(a) and the SPE-PRMS as the following reserves status definitions are based on excerpts from the original documents (direct passages excerpted from the aforementioned SEC and SPE-PRMS documents are denoted in italics herein).
DEVELOPED RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §210.4-10(a)(6) defines developed oil and gas reserves as follows:
Developed oil and gas reserves are reserves of any category that can be expected to be recovered:
(i) Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and
(ii) Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
Developed Producing (SPE-PRMS Definitions)
While not a requirement for disclosure under the SEC regulations, developed oil and gas reserves may be further sub-classified according to the guidance contained in the SPE-PRMS as Producing or Non-Producing.
Developed Producing Reserves
Developed Producing Reserves are expected to be recovered from completion intervals that are open and producing at the time of the estimate.
Improved recovery reserves are considered producing only after the improved recovery project is in operation.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
PETROLEUM RESERVES STATUS DEFINITIONS AND GUIDELINES
Page 2
Developed Non-Producing
Developed Non-Producing Reserves include shut-in and behind-pipe reserves.
Shut-In
Shut-in Reserves are expected to be recovered from:
(1) | completion intervals which are open at the time of the estimate, but which have not started producing; |
(2) | wells which were shut-in for market conditions or pipeline connections; or |
(3) | wells not capable of production for mechanical reasons. |
Behind-Pipe
Behind-pipe Reserves are expected to be recovered from zones in existing wells, which will require additional completion work or future re-completion prior to start of production.
In all cases, production can be initiated or restored with relatively low expenditure compared to the cost of drilling a new well.
UNDEVELOPED RESERVES (SEC DEFINITIONS)
Securities and Exchange Commission Regulation S-X §210.4-10(a)(31) defines undeveloped oil and gas reserves as follows:
Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.
(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.
(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.
(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in paragraph (a)(2) of this section, or by other evidence using reliable technology establishing reasonable certainty.
RYDER SCOTT COMPANY PETROLEUM CONSULTANTS
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